Introduction to assurance

Question 1

What is assurance?

Answer 1

An engagement in which a practitioner
obtains sufficient appropriate evidence in order to express a conclusion
designed to enhance the degree of confidence of the intended users other
than the responsible party about the outcome of the evaluation or
measurement of a subject matter against criteria

Question 2

Giving assurance means

Answer 2

offering an opinion about specific information so the
users of that information are able to make confident decisions knowing that
the risk of the information being ‘incorrect’ is reduced

Question 3

There are five elements of an assurance engagement

Answer 3

1 - Three party involvement
Practitioner – the reviewer of the subject matter who provides the
assurance.
Intended users – the people using the subject matter to make economic
decisions.
Responsible party – the party responsible for preparing the subject
matter.
2 Appropriate subject matter
The information subject to examination by the practitioner.
3 Suitable criteria
The criteria against which the subject matter is evaluated, i.e. standards,
guidance, laws and regulations.
4 Sufficient appropriate evidence
Sufficient appropriate evidence is needed to provide a basis for the opinion/
conclusion.
5 Written assurance report in an appropriate form
The output of the assurance engagement expressing a conclusion/opinion
about the subject matter.

Question 4

Two types of assurance engagement are permitted:

Answer 4

Reasonable and Limited

Question 5

Reasonable -

Answer 5

The practitioner:
Gathers sufficient appropriate
evidence to be able to draw
reasonable conclusions.

Performs very thorough procedures
to obtain sufficient appropriate
evidence including tests of controls
and substantive procedures.

Concludes that the subject matter
conforms in all material respects
with identified suitable criteria

Gives a positively worded
assurance opinion.

Gives a high level of assurance
(confidence)

Question 6

Limited -

Answer 6

Gathers sufficient appropriate
evidence to be able to draw limited
conclusions.

Performs significantly fewer
procedures, mainly enquiries and
analytical procedures

Concludes that the subject matter,
with respect to identified suitable
criteria, is plausible in the
circumstances

Gives a negatively worded
assurance conclusion

Gives a moderate or lower level
of assurance than that of an audit

Question 7

Example of a positive review

Answer 7

In our opinion, the financial
statements give a true and fair view
of (or present fairly, in all material
respects) the financial position of
Murray Company as at December
31, 20X4, and of its financial
performance and its cash flows for
the year then ended in accordance
with International Financial Reporting
Standards

Question 8

Example of a negative review

Answer 8

Nothing has come to our
attention that causes us to believe
that the financial statements of
Murray Company as of 31
December, 20X4 are not prepared,
in all material respects, in
accordance with an applicable
financial reporting framework

Question 9

An external audit is an example of a

Answer 9

reasonable assurance engagement.

Question 10

Purpose of an external audit engagement

Answer 10

ISA 200 - enhance the degree of confidence of
intended users in the financial statements

Question 11

True:

Answer 11

factually correct information which conforms with accounting
standards and relevant legislation, and agrees with the underlying
records.

Question 12

Fair:

Answer 12

clear, impartial and unbiased information which reflects the
commercial substance of the transactions of the entity

Question 13

The objectives of an auditor are to:

Answer 13

 Obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error.

 Express an opinion on whether the financial statements are prepared, in
all material respects, in accordance with an applicable financial reporting
framework.

 Report on the financial statements, and communicate as required by ISAs,
in accordance with the auditor’s findings

Question 14

Benefits of an audit

Answer 14

HIRED

Higher quality information which is more reliable, improving the reputation
of the market.

Independent scrutiny and verification may be valuable to management.

Reduces the risk of management bias and fraud and error by acting as a
deterrent. An audit may also detect bias, fraud and error.

Enhances the credibility of the financial statements, e.g. for tax authorities
or lenders.

Deficiencies in the internal control system may be highlighted by the
auditor.

Question 15

Expectation gap

Answer 15

Some users incorrectly believe that an audit provides absolute assurance – that
the audit opinion is a guarantee the financial statements are ‘correct’. This and
other misconceptions about the role of an auditor are referred to as the
‘expectation gap

Question 16

Limitations of an audit

Answer 16

FIRED

Financial statements include subjective estimates and other judgemental
matters.

Internal controls may be relied on which have their own inherent
limitations.

Representations from management may have to be relied upon as the
only source of evidence in some areas.

Evidence is often persuasive not conclusive.

Do not test all transactions and balances, only a sample are tested

Question 17

A review engagement is an example of a

Answer 17

limited assurance engagement

Question 18

Purpose and objective of a review engagement

Answer 18

A company which is not legally required to have an audit may choose to have a
review of its financial statements instead. The review will still provide some
assurance to users but is likely to cost less and be less disruptive than an audit

The procedures will mainly focus on analytical procedures and enquiries of
management. In particular, no tests of controls will be performed.
As only limited assurance is being expressed, the work does not need to be as
in depth as for an audit.

Question 19

Stewardship is the responsibility to

Answer 19

take good care of resources.
A steward is a person entrusted with management of another person’s
property, for example, when one person is paid to look after another
person’s house while the owner goes abroad on holiday. The steward is
responsible for the way they carry out their role.

This relationship, where one person has a duty of care towards
someone else is known as a ‘fiduciary relationship